Construction group accuses city of competing with local companies
Industry says municipality can use tax dollars to undercut rivals
The Saskatchewan Heavy Construction Association (SHCA) is accusing the City of Regina of competing against local industry and its members by selling recycled products to the market at a discounted rate and self-performing its own road construction.
Self-performing involves a city using its own equipment, materials and workers to carry out infrastructure projects rather than private companies.
“It is not a level playing field right now,” said Shantel Lipp, president of the SHCA.
“Unlike the private sector, municipally owned enterprises (MOE) can lose money and stay in business. MOEs don’t have to pay taxes, they can use the municipality’s credit rating to finance purchases at below-market interest rates and they use tax dollars to subsidize their operations to continue to undercut the private sector.”
Lipp stated that with the city operating its own construction business and asphalt plant, along with expanding the number of people on its paving crews, it’s hard for SHCA members to compete against an MOE.
“They are self-performing much more of the infrastructure work,” Lipp said.
“The justification to industry is that the city can do this cheaper. What we are saying is that it is not an apple-to-apple comparison.”
Calgary is the only other Canadian city with its own asphalt plant, but that city increases its markup to keep from distorting the local market, according to Lipp. One of the biggest concerns for Lipp and the SHCA is an apparent lack of transparency from the city, which makes competing for tenders difficult for private businesses.
“The challenge that (members) have is we don’t know what the costs are,” Lipp said.
“If you ask a contractor what goes into paving a street in a municipality, he can break down exactly what the costs are ... We said (to the city), ‘What are the costs, can you give us those costs?’ The city has not been able to give us dollar and cent costs.”
The SHCA also criticized the city for selling its recycled material below industry rates at about six dollars less per tonne, which includes a 20-per-cent markup by the city. The city currently sells crushed concrete, crushed concrete mixed with a sub-base, crushed asphalt concrete, cold planings and coarse concrete.
“It is skewing the market,” Lipp said.
“When you go to the city and say you are undercutting our business at a rate below what the industry market is selling for locally, you then have council members telling you they need that source of revenue because the government cut their grants.”
In a letter to city councillors, as well as one sent to council candidates during the 2016 civic election, the SHCA stated the city dedicates one per cent of the property tax to fund roadway renewal, and should not be competing against private sector contractors, using tax dollars that come, in part, from the same private sector contractors.
“The latest inquiry, the only (councillor) we heard back from was Andrew Stevens,” Lipp said. “In terms of the municipal election, almost all candidates responded and almost all of them said they would need more information.”
Stevens, in his opinion, sees the city having an asphalt plant and road construction business for its projects as beneficial for the city and its taxpayers.
“I was surprised by the construction association response that we shouldn’t be doing that,” Stevens said.
“I think that any resident would encourage the city to raise revenue that isn’t through property taxes ... The city should be generating revenue and should be finding new ways to generate revenue that isn’t property taxes.”
Stevens also questioned the logic
Do they need all these engineers and testers on staff when locally the market can absorb that?
of a city not competing with private industry.
“Should all of our HR and payroll be outsourced because it competes with private industry?” Stevens said.
“Considering what people say about roads in Saskatchewan, this is what we do and you will be hard-pressed to find anyone who suggests we do it less effectively. What the city does is a very effective means of delivering services and that is partially through this plant.”
With the provincial budget changes creating a $10.3-million shortfall this year on the city’s budget due to provincial downloading, Stevens says right now it is more important than ever to find savings and generate revenue.
“It makes sense, and it always has for us, to find new ways to generate revenue, especially as we are constrained by what the province allows us to do by means of new forms of taxation and revenue generation,” Stevens said.
“It would be silly for us to abandon a project that generates money for the city.”
Lipp offered an alternative view, saying providing stability to the local contractor community would end up helping the city save money.
“If you know that funding is going to be cut, wouldn’t it now be time to look at how much costs are being put into running a municipal-owned construction company?” Lipp said.
“Wouldn’t that money be better spent entering into multi-year agreements with the local contractor community? When contracts know they have stability, you are going to get better pricing.”
According to Lipp, the local market could also absorb costs related to several aspects with roadway construction and paving.
“Maybe it is time to look at if (the city) needs to have a fleet of machinery to pave city streets. Do they need an asphalt plant?” Lipp said.
“Do they need all these engineers and testers on staff when locally the market can absorb that?”